Joseph Longo, president of the Australian Securities and Investments Commission (ASIC) is calling for the closure of a regulatory loophole that allowed FTX to acquire an Australian Financial Services License (AFSL) in the country without the full set of controls.
According to a December 5 report of the Australian Financial Review, Longo made the comments while speaking at a joint parliamentary committee on corporations and financial services on Monday local time.
One important issue that the committee investigated was, of course, the recent Merger of FTX and Alameda Research led by the now troubled founder Sam Bankman-Fried.
Longo defended his regulator when asked how and why the regulator allowed FTX to acquire an AFSL under his watch, explaining that a regulatory loophole prevented ASIC from stepping in or conducting proper checks.
FTX was reportedly able to circumvent the regular process for obtaining an AFSL when it took over IFS Markets in December 2021, effectively giving it access to its license. FTX Australia then began operations in March 2022.
Longo said this loophole gives ASIC no legal basis to vet corporations in the same way new licensees are vetted.
FTX "bought [its AFSL] from an existing licensee. Under current legal arrangements, that's normal," Longo said, adding, "We were notified of that position, but it's very easy to trade someone else's license."
Longo also added that ASIC had specifically requested the previous government headed by Scott Morrison to fill this regulatory gap, but the issue was ultimately not addressed.
As it stands, ASIC can only look at a company from the back to the front when it applies for a new AFSL and therefore determine if it has adequate capital and compliance controls in place.
Related: Digital assets could add $40 billion a year to Australian GDP: Tech Council report
In response, Senator Deborah O'Neill stressed that the loophole that allows FTX to essentially have an ASIC approval without being investigated by the regulator presents a worrying prospect for Australian consumers.
"Besides the crypto trade itself, just because you have an ASIC-marked AFSL, is there no guarantee there's integrity?"
โFTX has had little to no [corporate] governance. We're talking about a real cowboy who got in, paid the price [for an AFSL] โฆAn AFSL was flagged for all ASIC purposesโฆbut there is great risk here,โ he added.
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